Brief Designing a Work-Friendly Tax System
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Options and Trade-Offs
Jonathan Barry Forman, Adam Carasso, Mohammed Adeel Saleem
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The federal tax system often imposes its highest effective marginal tax rates on low- and moderate-income individuals. This paper suggests several ways to reduce those high effective marginal rates but illuminates the large trade-offs involved. One approach would replace the current earned income credit (EIC) with a $2,000 EIC for working parents and a refundable $1,000 per child tax credit. A more comprehensive approach would integrate the individual income and Social Security tax systems into a single tax system with just two tax rates and a refundable $2,000 EIC for working parents and a $1,000 universal grant for every person.
Research Areas Taxes and budgets
Tags Individual taxes Federal budget and economy Campaigns, proposals, and reforms Federal tax issues and reform proposals
Policy Centers Income and Benefits Policy Center